Establishing Business Credit: A Step-by-Step Guide

Billie Hillier

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Establishing Business Credit

In the world of business, business credit plays a vital role in the health and growth of your company.

Having strong business credit can open up numerous opportunities, including access to loans with better terms, lower insurance premiums, and better supplier arrangements.

Despite its importance, many business owners lack clarity on how to build business credit.

Business Credit

Establishing Business Credit

Understanding Business Credit

Business credit, like personal credit, is a measure of the creditworthiness of a business. It is based on a business’s credit history and is used by lenders, suppliers, and other entities to evaluate the financial strength and reliability of that business.

Learn about Creating a Business Plan.

Establish Your Business Entity

Your business must be a separate legal entity to establish business credit apart from your personal credit. The first step to achieving this is by registering your business. This could mean setting up a Limited Liability Company (LLC), Corporation, or Partnership. This not only protects your personal assets from business-related liabilities but also lays the groundwork for building business credit.

Learn about Business Structures.

Obtain an Employer Identification Number (EIN)

The next step is to obtain an Employer Identification Number (EIN) from the IRS. This is essentially the social security number for your business, and it will be used on applications to open a bank account, apply for business licenses, and file your tax returns.

Learn About Employer Identification Numbers.

Open a Business Bank Account

With your business registered and your EIN in hand, the next step is to open a business bank account. This separates your personal finances from your business finances, a crucial factor when establishing business credit.

Get a Dedicated Phone Line

Lenders and credit bureaus will use your business’s contact information to verify your business’s legitimacy. Getting a dedicated business phone line and having it listed under your legal business name further establishes your business as a separate entity.

Register with Credit Bureaus

While your business will automatically have a credit report with business credit bureaus as soon as it starts financial activities, it can be beneficial to voluntarily register your business with these bureaus – such as Dun & Bradstreet, Experian Business, and Equifax Business – and keep your business information updated.

Establish Trade Lines with Suppliers

Trade lines are lines of credit that businesses get from suppliers. If you buy goods or services from suppliers, ask them if they can report your payment history to the major credit bureaus. Regular, timely payments to suppliers help build a good business credit profile.

Get a Credit Card

Using a business credit card responsibly is one of the easiest ways to build business credit. Ensure that the card issuer reports to the major credit bureaus to affect your credit score positively.

Borrow from Lenders that Report to Credit Bureaus

When you take out a loan or line of credit, make sure to borrow from lenders that report to the credit bureaus. Consistently making timely payments on these loans will greatly improve your business credit.

Keep Your Information Current

Keep your business information up to date with all three credit bureaus, and review your credit reports for errors periodically. This will help maintain your business credit score.

Pay Your Bills on Time

Finally, one of the most crucial steps in establishing and maintaining good business credit is to pay all your bills on time. Late or missed payments can negatively impact your business credit score.

Establishing business credit won’t happen overnight, but with dedication, patience, and careful financial management, you can build and maintain a strong business credit profile that will stand your business in good stead for years to come.

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